Asia Markets recap: Stocks face China trade jitters

March 9, 2014, 7:24 PM ET

Reuters

Welcome to the Asia Markets live blog, a running account of what the region’s stock markets are doing, along with other news. Today, shares get their first chance to react to data out over the weekend showing a sharp drop in Chinese exports and a swing to trade deficit, even as some economists point to distortions in the numbers.

Australia stocks are trading solidly lower, as disappointing Chinese trade data and a plunge in some metals prices are yanking miner shares lower. At this point, the S&P/ASX 200 is down 0.5%, wiping Friday’s 0.3% gain clean away.

China reported a surprise trade deficit on the back of a more-than-18% tumble in exports from a year earlier, though various analysts say the result could be deceiving due to seasonal distortions (not to mention false invoicing that may have overstated exports in the comparison period).

A more tangible weight on the market is a selloff in some key commodities, including spot iron ore’s drop of more than 2% on Friday, as well as retreats for copper, aluminum, nickel and others.

“Precious metals were lower, and copper was walloped (down 4.2%),” wrote Rivkin Securities CEO Scott Schuberg in a note ahead of the open. “The copper plunge is tied to the growing use of the commodity as financing collateral in China — there are fears there that, with many asset valuations marked to copper prices, a continued sell-off could bankrupt those holding too much copper on their balance sheets.”

And so we have: BHP Billiton down 2.6%, Rio Tinto down 3.6%, Fortescue Metals Group down 5.2%, Atlas Iron down 5.8%, Oz Minerals down 3.8%, Alumina down 3.5%, and, well, you get the picture.

Outside of the miners, Bluescope is 2.5% lower, possibly suffering from the China numbers, while Qantas is extending recent losses with a 1.3% drop.

On the upside, Wesfarmers is advancing 0.3% after reports said over the weekend that the retailer may spin off its insurance business in an IPO potentially worth $1 billion or more.

On the face of it, China’s February trade account was TERRIBLE: Exports usually show at least some growth, but this time they were down 18% from the year-earlier period. This spawned a rare Chinese trade deficit of about $23 billion. (January was in surplus by just short of $32 billion with exports up 10.6%.)

But quite a few economists are urging everyone to take deep breaths and accept that much (or maybe all) of the drop was about various distortions.

1) The holiday distortion was caused by Lunar New Year occurring in January this year and February last year.

2) The fake-trade issue was because “exporters reportedly front-loaded their shipment this January,” while the year-earlier month was plagued by “inflated trade reporting.”

3) More legitimately, “external demand has likely remained soft, as seen in the falling Purchasing Managers’ Index export orders for three consecutive months,” including a particular drop in shipments to Korea.

Bank of America-Merrill Lynch economists Ting Lu and Sylvia Sheng agree, writing that, although “surely we recognize that some of these February trade data appear no good … we believe the real situation is not that bad, and could be quite normal.”

Factoring out the seasonal volatility and accounting for what they see as an upward skewing of about 10% in the year-earlier data, Merrill Lynch see January-February exports as having risen by about 7%-8%.

The Cabinet Office says the economy grew just 0.2% (0.7% annualized) in October-December, not 0.3% (1% annualized) as it had initially reported. The downward revision matched the median forecast from a Bloomberg News survey of economists.

A number of analysts seem to be tying the result personally to Prime Minister Shinzo Abe and his policies: “The data is likely to add further pressure on PM Abe to deliver,” writes Kim Eng Securities; “The recovery thus lost pace in the second half of the year. Nonetheless, it would be premature to conclude that Abenomics has failed based on these figures alone,” writes Capital Economics.

Meanwhile, Japan also posted its fourth current-account deficit in a row in January, with the gap of ¥1.589 trillion ($15.4 billion) in January outpacing a projected deficit of ¥1.4 trillion from a Wall Street Journal/Nikkei survey.

The Japanese yen showed little reaction to the stats, though stocks opened slightly lower than futures had implied ahead of the release.

With disappointing data, both domestically and from China (see previous posts on this blog), and with the yen roughly where it was on Friday, Japanese stocks are moving lower.

The Nikkei Average is down 0.6%, eating into Friday’s 0.9% advance, while the Topix is weaker by 0.5%.

Telecoms are a sore spot this morning, with KDDI down 1.9%, NTT DoCoMo down 1.1%, and its parent NTT down 2.1% (even after a Nikkei news report late last week that the company was planning to “ramp up efforts to attract new individual shareholders, particularly investors in their 40s and 50s.”) Faring a little less poorly than its peers, shares of Softbank are lower by 0.5%.

Pharma is also weakening, with Astellas down 1.4%, and Daiichi Sankyo down 1.6% after its listed Indian subsidiary Ranbaxy Labs issued yet another recall of atorvastatin — its generic Lipitor cholesterol drug — this time due to some bottles possibly containing higher-dose tablets, according to The Wall Street Journal.

Some real-estate names are getting a boost, though, with Sekisui House up 1.4%, Obayashi up 2.4%, and Kajima up 2%.

And Sony is bucking the market with a 1.4% gain. This coincides with news out after the market close Friday confirming the sale of its former headquarters building and another nearby property for just under $160 million.

Although many analysts attributed the unexpected weakness to the Lunar New Year Holiday effect and the unwinding of hot-money trades due to the recent depreciation of the yuan, the data sparked jitters that are hitting stocks hard.

Hong Kong markets saw a selloff across the broad, with most mainland Chinese banks losing more than 1%. China Construction Bank and China Merchants Bank, among others, fell more than 1.5%.

Airlines and insurers sank after the mysterious disappearance of a Malaysia Airlines flight Friday from Kuala Lumpur to Beijing. China Southern Airlines slid 3.1%, and Air China retreated 2.4%. Ping An Insurance also fell 2.2%.

The world’s largest wireless carrier, China Mobile, fell 2.3% after the company’s chairman said in a meeting of China’s top political advisory body that the telecom plans to cut the price for its 4G service, as the Chinese public complained the charges were too high.

China’s Justice Ministry — or at least a newspaper run by China’s Justice Ministry — isn’t very pleased with Microsoft’s decision to retire its Windows XP operating system.

The ministry’s paper says the move will jack up risks of software piracy, as Windows users find upgrading to Windows 8 to be too expensive.

Roughly half of all Chinese computers were still on Windows XP as of January, according to a New York Times report highlighting the issue.

With Microsoft now ending its tech support for the older operating system, previous efforts to stop pirating of Microsoft Windows will be undermined as users seek to avoid costly upgrades, the New York Times cited a Chinese intellectual-property regulator as saying in December.

In a preview of tomorrow’s Bank of Japan policy decision, Capital Economics sees so little chance of any sort of news that its focus is on whether the word “Ukraine” will be included in the statement.

“It will be interesting to see whether geopolitics is added to the list of risks to Japan in the light of events in Ukraine,” it says in a note out today.

“But overall, nothing has happened since the last meeting just three weeks ago to justify a policy re-think,” Capital Economics says.

In fact, not only does the London-based research house expect nothing from this month’s meeting, it doesn’t see anything happening until well into the year.

“Before deciding to ease policy further, the Bank [of Japan] will therefore want to view the data for the first quarter and the second quarter together and probably wait for the bulk of the numbers for the third quarter too … This points to late October as the most likely timing for the announcement of additional easing,” it says.

Investors in Hong Kong and Shanghai have taken a heavy blow from the seemingly shocking Chinese trade data and the mysterious disappearance of a Beijing-bound Malaysian airliner. Both appeared to be almost unbelievable.

China reported Saturday that its exports growth in February plunged 18.1% from a year earlier, the sharpest decline since the global financial crisis. Read more in the posts above.

The disappearance of a Malaysia Airlines flight on Saturday has prompted a sell-off in airlines and insurers. Stock in China Southern Airlines, which shared the missing flight operated by Malaysian Airlines, fell 3.9%, Air China gave up 2.4%, and China Eastern Airlines Corporation dropped 1.5%.

Reports said a dozen of Chinese insurers may be responsible for the Malaysia Airlines flight claims, with Ping’an Insurance having provided at least 38 passengers with various forms of insurance. Ping’an Insurance dropped 1.7% in Hong Kong. China Life Insurance retreated 2.3%, and People’s Insurance Company gave up 1.9%.

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